Japan Exchange Group Creates Consortium and Expands Blockchain Trials

The Japan Exchange Group or JPX established a group involving a number of corporations under its umbrella to test the Proof of Concept market infrastructure of Blockchain.

The Tokyo and Osaka Stock Exchanges will work with Japan Securities Clearance Corporation to check the prototype mutually. JPX already announced last February it teamed up with the Japanese Division of IBM to test the Blockchain. It will use the technology company’s Fabric Platform as basis for conducting tests.

JPX is an Asian Financial Services Conglomerate operating multiple securities which include Osaka Securities Exchange and Tokyo Stock Exchange. It is the third largest next to the New York Stock Exchange Euro Next and NASDAQ OMX Group. JPX is also the biggest bourse in Asia.

New Initiative

This effort concerning Blockchain is expected to progress based on the collaboration. The Tokyo Stock Exchange and IBM will build the “Test Environment”. This will be followed by the actual test period conducted by other JPX entities. The Japan Exchange Group will strive to entice other stakeholders particularly those trading on their exchanges to this alliance. Its goal is to expand membership within Japan. All these activities will start early 2017.

Consortium members will perform Proof of Concept testing and talk about the application of Distributed Ledger Systems to capital market infrastructure. This will be from the technical and operational points of view. JPX wants to explore an environment that will comprise roles for companies engaged in securities trading. It also foresees apps being developed aside from Fabric by participating exchanges. JPX released a press statement recently arguing that the DLT is more cost-effective is applied to capital markets where third parties are included.

A 27-page Working Paper disclosed insights of Japan Exchange Group in its Proof of Concept initiatives along with primary points from experiments. This report is the latest output of JPX regarding the Group’s heightened interest in Blockchain technology. The suggestion that derivative technologies are more effective if third parties are taken out from web-based transactions will probably become contentious. Said report further contends that financial institutions must apply or use this architecture to protect against risks that Blockchain data will become accessible to other monetary institutions using shared ledgers.

It is advisable that stored data can only be accessed by relevant parties due to business requirements and concerns. No one has the capacity to validate securities’ ownership claims because it will lose ownership feature by public trust. Following this argument, privilege of complete data access must be accorded to a trusted third-party liable for ownership certification.

JPX Proof of Concept

The Japan Exchange Group’s Central Security Depositories served as certification authority during Proof of Concept. This system will be safe as the decentralized model used by the Bitcoin Blockchain. Regulators and Information Technology sellers can help facilitate Blockchain transactions. Third parties can lessen the risk of payment failures and intervene in situations between different sellers and purchasers. One situation is when a log jam ensues because of failed deliveries. Financial institutions are trying to determine how to achieve the efficiency and speed of shared ledgers without providing complete transaction histories to participants. This concern (real and alleged) came out as urgent that can delay wide-scale acceptance of Distributed Ledger Technology or DLT.

Replication of Bitcoin

Japan Exchange Group provides a more confined description for DLT for enterprise companies and commended the capability of Bitcoin to apply advances solving codes for the financial sector. However, it was observed that DLT cannot be compared yet to other technologies with regards to development even as parameters for the Blockchain have been defined. The JPX report described DLT as highly enticing for use in infrastructure. It cited inflexibility and resistance to system breakdown together with capability to share ownership registry as key factors.

Aside from the technological attributes, it is possible to redesign business approaches by looking at the ability of distributed ledger technology to make the industry more efficient through financial services innovation and wider cost reduction. The JPX Paper looks into the Six aspects of ledger technology which are:

Relevance to capital markets

Consensus process

Throughput

Availability

Privacy of data

Costs

JPX also sees the value of clearing and payments in making current workflows more efficient trading and reconciliation will be more challenging. The consortium made clear its commitment to investigate and increase its support for the DLT in the face of issues about its acceptance by mainstream enterprises. The Japan Exchange Group cites cost-savings as the major benefit for business processes.